Growth Slows Again in July

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Geneva - The International Air Transport Association (IATA) announced global traffic results for July showing slower growth in both air travel and freight, but with considerable variation by region and market.

July passenger demand in aggregate was 3.4% higher than the same month last year, compared to a 6.3% increase in June and average growth of 6.5% over the first half of the year. This slowdown in travel growth is being driven largely by the recent fall in business confidence in many economies.

July freight demand was 3.2% lower than it was in the same month last year. This is down on the 0.1% year-on-year growth rate of June. A large part of that decline was due to a comparison with a relatively strong July last year, but overall the trend in air freight is weak, in line with subdued world trade growth.

Airlines have responded to this slower growth environment by reducing the capacity added to markets, a move which has stabilized load factors at relatively high levels and provided some support for profitability in the face of high fuel prices. In July passenger capacity rose 3.6%, in line with the expansion of traffic, keeping the load factor at a relatively high 83.1%.

“The uncertain economic outlook is having a negative impact on demand for air transport,” said Tony Tyler, IATA’s Director General and CEO. “The cargo business is 3.2% smaller than it was a year ago. And passenger markets—with the exception of Africa, China-domestic and the Middle East—saw demand fall from June to July. Overall passenger demand is still up 3.4% on the previous July. But the growth trend is clearly slowing. This, along with rising fuel prices is likely to make it a tough second half of the year.”

July 2012 vs. July 2011

RPK Growth

ASK Growth

PLF

FTK Growth

AFTK Growth

International

3.5%

3.5%

83.3

-3.3%

-0.1%

Domestic

3.1%

3.8%

82.6

-2.4%

-2.2%

Total Market

3.4%

3.6%

83.1

-3.2%

-0.6%

YTD 2012 vs. YTD 2011

RPK Growth

ASK Growth

PLF

FTK Growth

AFTK Growth

International

6.8%

4.7%

78.7

-2.8%

1.6%

Domestic

4.5%

4.1%

79.4

0.6%

-1.1%

Total Market

6.0%

4.5%

78.9

-2.4%

1.0%

International Passenger Markets

July international passenger demand was up 3.5% compared to the year-ago period, exactly in line with a 3.5% expansion in capacity. Load factors stood at 83.3%. The slowdown becomes evident when comparing to the previous month (June) when the year-on-year rate was 7.5%. Growth on average during the first half of the year was also 7.5%. The slowdown in international air travel growth has been concentrated in the past few months, in line with the decline of business confidence. Weakness in some key domestic air travel markets has been evident for rather longer period. Only African and Middle Eastern carriers showed month-to-month growth. Carriers in all other regions reported aggregate declines for international demand for July compared to June.

European carriers recorded 4.8% growth (down from 7.3% in June) on international services compared to July 2011 with an average load factor of 85.7%. That was a relatively modest slowdown from the 6.5% average growth seen during the first half of the year. Despite the recession in many European home markets, airlines from the region have been able to sustain growth on long-haul markets to regions where economic growth is stronger.

North American airlines’ international traffic fell 2.1% year-on-year in July (after rising 1.6% in June) in part owing to decisions to trim capacity, particularly on the North Atlantic market. Compared to June (the previous month), demand contracted by 1.3%. The load factor was 86.7%, the highest among all regions.

Asia-Pacific carriers saw demand growth of just 0.9%. This is a major slowdown from the 5.8% recorded in the June year-on-year comparison. Moreover, compared to the previous month (June 2012), demand contracted by 1.3%. European airlines appear to be benefiting more than Asia-Pacific airlines from the recently stronger trade flows from West to East, while the Middle Eastern airlines continue to offer strong competition on long-haul markets. The downward growth trend began in the second quarter of 2012 and has now continued into the third.

Latin American airlines posted growth of 5.7%, second highest among the regions. The load factor stood at 82.0%. The region’s carriers, however, could not buck the slowdown trend, after average growth of 10.1% in the first half of the year. Recently key economies in the region, such as Brazil, have seen an interruption to economic growth, which has affected travel and freight.

Middle East carriers experienced the strongest traffic growth at 11.2% year-over-year, although this was surpassed by a 12.4% rise in capacity. Compared to June, traffic rose just 0.1%. The region’s growth trends were impacted by Ramadan, which commenced in July this year.

African airlines’ traffic climbed 5.2% year-on-year, below a 6.3% rise in capacity. Load factor was 73.1%, by far the lowest of any region. The continent’s airlines have seen strong growth of 10.8% on average during the first half of the year. This has partly been a rebound from the Arab Spring, but also reflects the relative success of many African economies at present.

Domestic Passenger Markets

Domestic markets also experienced slow growth, continuing the trend that began early this year. In total, traffic rose 3.1% year-on year, down from 4.2% in June. However, the slowdown was not universal, with China and Brazil recording strong growth that was offset by weakness in India and Japan.

China’s domestic market rebounded sharply from the slowdown earlier this year to post 9% demand growth in July, up from the 7.8% year-over-year growth seen in June. With capacity up 12.1%, load factor slipped to 84.1% from 86.5% last year.

Japan’s domestic market rose just 4.2% versus the year-ago period and actually slipped 1% compared to June. Capacity rose 7.9% and load factor was the lowest for any market at 58.7%. Overall the market has contracted 4% this year and is 10% smaller than pre-earthquake levels.

US traffic slipped 0.4% in July while capacity rose by 0.2%. Load factors dipped to 86.8% from 87.4% last year, still the highest among all the domestic markets.

Brazil experienced the strongest growth after China, with traffic up 8.5% on a 3.0% rise in capacity. Load factor rose to 77.7% from 73.8% last July. However growth softened compared to June, declining 2.3%.

Indian domestic traffic fell 1.1% compared to a year ago, the worst performance for any market, reflecting the weakening economy among other factors. After expanding at 20%-plus rates through 2010 and early 2011, the Indian market stopped growing at the end of 2011. July capacity rose 2.1%, dropping the load factor to 69.6% from 71.8% last year.

Air Freight (Domestic and International)

Air freight demand contracted 3.2% compared to July 2011 but was unchanged compared to June. Middle East carriers recorded a 16% increase in demand year-on-year but all other markets experienced declines and the small recovery seen since the end of 2011 has stagnated.

Asia-Pacific carriers saw a 7.6% decline in demand in July compared to the previous year, the steepest decline for any region, while capacity dipped just 4.3%. Asia-Pacific carriers have experienced virtually no growth in freight traffic since the fourth quarter of 2011. European airlines had a 3.6% decline in traffic, with a 0.9% rise in capacity. Europe’s airlines have seen only a 1% rise in demand since the 2011 fourth quarter. North American airlines had a 3.6% drop in demand, matching a similar reduction in capacity. Load factor was the lowest for any region at 32.3%.

African carriers’ results were not available but will return next month.

The Bottom Line

“The huge success of the London Olympics was also an important reminder of the vital role that international aviation plays in bringing the world together and facilitating global mega-events. Now all eyes are on Brazil which will host the 2014 World Cup and the 2016 Olympics. And aviation will play a key role there as well,” said Tyler.

“It will take a team effort to ensure that Brazil’s aviation infrastructure is up for the challenge,” said Tyler. Brazilian aviation supports 940,000 jobs and 1.3% of GDP, while the connectivity provided by aviation supports Brazil’s emergence as a rising BRICS economy. But, despite aviation’s economic importance to Brazil, the country ranks 93rd for the quality of its air transport infrastructure in the World Economic Forum’s Travel and Tourism Competitiveness Index.

Last week IATA, working in partnership with the Latin American and Caribbean Air Transport Association and other aviation organizations, hosted the first Aviation Day in Brazil. “With a focus on global standards, industry and government looked at ways to cooperate to ensure that Brazilian aviation continues to be a key driver of growth, operating at ever higher levels of safety, security, efficiency and sustainability,” said Tyler. “What is true for Brazil is also true for the rest of the world. Aviation supports 56.6 million jobs and has a global economic impact of $2.2 trillion. Governments should treat this resource wisely, with tax regimes that do not kill growth, regulation that facilitates growth and world-class infrastructure that can efficiently accommodate growth.”

Domestic RPKs account for about 37% of the total market. It is most important for North American airlines as it is about 67% of their operations. In Latin America, domestic travel accounts for 47% of operations, primarily owing to the large Brazilian market. For Asia-Pacific carriers, the large markets in India, China and Japan mean that domestic travel accounts for 42% of the region’s operations. It is less important for Europe and most of Africa where domestic travel represents just 11% and 12% of operations respectively. And it is negligible for Middle Eastern carriers for whom domestic travel represents just 6% of operations.

Explanation of measurement terms:

RPK: Revenue Passenger Kilometers measures actual passenger traffic

ASK: Available Seat Kilometers measures available passenger capacity

PLF: Passenger Load Factor is % of ASKs used.

FTK: Freight Tonne Kilometers measures actual freight traffic

AFTK: Available Freight Tonne Kilometers measures available total freight capacity

FLF: Freight Load Factor is % of AFTKs used

IATA statistics cover international and domestic scheduled air traffic for IATA member and non-member airlines.

All figures are provisional and represent total reporting at time of publication plus estimates for missing data. Historic figures may be revised.